Reid Says New Revenue Vital in a Budget Deal

By

Neil King Jr. and

Corey Boles

Updated Feb. 3, 2013 7:49 p.m. ET

WASHINGTON—Senate Majority Leader
Harry Reid
drew a red line in the budget showdown with Republicans, saying Democrats will demand additional revenue as part of any deal to alter the mandatory spending cuts set to hit at the beginning of next month.

ENLARGE

Sen. Harry Reid, left, says there are tax loopholes that should be closed.
Associated Press

The comments, made in an interview Sunday with ABC's "This Week," come as Senate Democrats weigh options for averting at least some of the March 1 cuts, known in Washington as the sequester. One Democratic proposal would seek to offset some of the roughly $85 billion in cuts this year with a combination of tax increases and spending cuts.

"There are a lot of tax loopholes that should be closed," the Senate's top Democrat said in the interview aired Sunday. He cited tax provisions for oil companies and for companies with operations overseas. The White House has called for similar steps as part of any deal to avert some of the March 1 cuts.

President
Barack Obama
on Sunday also said cutting the deficit will require raising more revenue, cutting spending and reforming health-care programs. In an interview with CBS, the president said he wants to close loopholes—not raise tax rates again—to pay down the country's debt and make the tax system more equitable. "There is no doubt we need additional revenue, coupled with smart spending reductions," Mr. Obama said.

WSJ reporters talk about the unfinished agenda and the prospect of a confrontation over spending between the White House and Congress in March. Also: Is Hillary Clinton getting ready for another presidential run? (Photo: AP)

The deal enacted last month to avert the so-called fiscal cliff included a tax increase for individuals earning more than $400,000 and couples making more than $450,000.

The president said he now wants to eliminate loopholes that allow some wealthy taxpayers to pay relatively low rates. He singled out carried-interest income as an area for change. Carried interest is a share of a partnership's profits that is taxed at capital-gains tax rates rather than at higher income-tax rates.

On Capitol Hill, several Republican leaders in Congress have said they expect the sequester cuts to be implemented, at least temporarily, given how far apart the two sides are. Many GOP lawmakers support the across-the-board cuts as the only way now open to reduce government spending.

At the same time, GOP lawmakers say they aren't willing to consider any more revenue increases, noting they already agreed to nearly $700 billion in new taxes as part of the last-minute deal to avert the so-called fiscal cliff at the beginning of the year.

"Washington needs to do something about its spending,' said Rep. Lou Barletta (R., Pa.), also on ABC's "This Week" program. "We are spiraling out of control."

The Reid comments highlight a fundamental difference between the parties that promises to create strains all year as Republicans dig in against demands from Senate Democrats and the White House that any spending cuts be matched by tax increases.

Mr. Reid said he was confident the general public supported that position.

"The American people are on our side," he said. "The American people don't believe in these austere things. We believe that the rich should contribute. We believe we should fill those tax loopholes -- get rid of them, I should say."

With the Pentagon set to get hit hard by the coming cuts, Defense Secretary Leon Panetta said Sunday that Congress would be committing "a shameful and irresponsible act" if it allows the defense cuts to proceed. The sharp reduction in spending, he said, would weaken U.S. readiness.

Mr. Reid said he opposed shifting the balance of cuts away from the Pentagon. "If we're gonna have sequester, defense is gonna have to do their share," he said.

Republicans in the GOP-controlled House twice last year passed legislation that would have shifted the defense portion of the cuts elsewhere in the federal budget, most notably cuts to the food-stamp program and a requirement forcing federal employees to contribute more to their retirement savings.

The legislation never moved in the Senate.

Senior House GOP aides have suggested that leadership may decide to bring that bill, or something similar to it, to the full House again for a vote, hoping to pressure Senate Democrats to move forward with their own bill to avert the cuts.

The sequester is set to trim a wide range of federal spending and would be a down payment on the $1.2 trillion in spending cuts over the next decade called for under current law.

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